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Market Commentary
Economic Updates
Recent News |
Weekly Commentary
December 7, 2009
The Markets
Could
November go down in history as a major turning point in the U.S. economy?
The shocking
(in a positive way) unemployment report released last Friday by the Labor
Department showed the economy lost only 11,000 jobs in November. The markets
were bracing for a number well in excess of 100,000, according to CNBC. On top
of that, revisions to the previous two months showed 159,000 fewer jobs were lost than initially
reported. And, to complete the trifecta, the unemployment rate dropped to 10.0%
in November, down from 10.2% in October. On the surface, this is extremely good
news for the economy as it suggests the economy is healing nicely.
Initially,
the stock market roared higher on the news. However, as the day wore on, prices
started to fade as investors realized that if the economy is too strong, it
will cause interest rates to rise sooner than expected. As interest rates rise,
it may cause the economy to slow down. So, in the (almost) comical way that Wall
Street works, investors like good news - but not too good of news!
Gold prices
plunged on the unemployment report and interest rates and the U.S. dollar
soared. True to form, whenever there is major market moving news, we tend to
see some asset classes that benefit and some that lose out. This complex and
ever-shifting interrelationship among various asset classes was on full display
after the unemployment news broke. Of course, we do our best to stay on top of
these relationships and seek to profit from them on your behalf.
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Data as of 12/4/09
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500 (Domestic Stocks)
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1.3%
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22.4%
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26.2%
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-7.8%
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-1.5%
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-2.5%
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DJ Global ex US (Foreign Stocks)
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3.2
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40.4
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55.6
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-5.0
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4.1
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1.2
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10-year Treasury Note (Yield Only)
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3.5
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N/A
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2.6
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4.4
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4.2
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6.1
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Gold (per ounce)
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2.0
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36.9
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53.9
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22.6
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21.3
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15.7
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DJ-UBS Commodity Index
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-0.4
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15.0
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21.9
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-7.7
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-1.5
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3.9
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DJ Equity All REIT TR Index
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9.0
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25.6
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56.8
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-13.6
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0.4
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11.1
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Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns
exclude reinvested dividends (gold does not pay a dividend) and the three-,
five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does
include reinvested dividends and the three-, five-, and 10-year returns are
annualized; and the 10-year Treasury Note is simply the yield at the close of
the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market
Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested
into directly. N/A means not applicable
or not available.
THERE IS A DIFFERENCE BETWEEN LUCK AND SKILL and knowing when you are just lucky and when you are successful due to
skill is of paramount importance as an investor. Let's say you correctly called
the flip of a coin five times in a row. What are the odds that you will
correctly call the next flip? Correctly calling five flips in a row might be
considered a "hot streak" and lead you to believe that chances are high you can
correctly call the next flip. Well, assuming it is a fair flip, there is, of
course, only a 50/50 chance that you will be correct because flipping a coin is
a game of known probability. The fact is the coin flip has no memory of your
hot streak.
An investor who is on a "hot streak" may or
may not be lucky. Let's take John Paulson as an example. He was a faceless
hedge fund manager toiling in obscurity until he came upon an idea. He became
convinced several years ago that the housing market was a bubble ready to
burst. He put his money where his thesis was and he made billions of dollars
for himself and his clients, according to a new book, The Greatest Trade Ever, by Gregory Zuckerman.
Today, Paulson is the toast of the hedge fund
world and his latest "big bet" is that gold prices will continue to rise. This
is not a recommendation from us to either buy or sell gold; rather, we want to
make a point.
With millions of investors, odds are that
some of them will make winning investments numerous times in a row. If these
winning investors were, in reality, just lucky, but they think they were actually skillful, then that is when the
situation turns problematic. The lucky investor may start to think they are
infallible and get stubborn when the market turns against them. Eventually,
when the lucky streak ends, it will likely mean serious losses for the
investor. Only time will tell whether John Paulson got lucky or whether he has
substantial investment skill.
The best antidote we know of to the danger of
confusing luck and skill is to remain humble. When our investment strategy
performs well, we are very thankful. When it doesn't perform well, we try to
learn from it. The investment business has an uncanny way of turning hubris
into painful losses. We think humility is a safer route.
Weekly Focus - Think About It
"If we become increasingly humble about how
little we know, we may be more eager to search."
-- John Templeton
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Best regards,
Jim Forcella, CFP®, CFS
LPL Branch Manager
LPL Investment Adviser Representative
CA Insurance License #0635256
P.S. - Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
Closing Reminders - Should your personal or financial situation change (i.e. Marital or employment status, beneficiary changes or income needs) please contact us at 530.222.6301 or 800.546.5573 for either a phone review, or an appointment. We want to ensure that your current financial objectives meet your personal circumstances.
Forcella Wealth Management Information - Are you receiving too much mail regarding your investments? You now have the option to receive your LPL Financial communications electronically! LPL Financial is pleased to offer the convenience of viewing shareholder communications, including the fund prospectus, annual reports, and proxy statements online. Visit the link below to be directed to a secure website where you will enter your LPL Financial account number and Email address. You will no longer receive shareholder communications information through the mail but can request a hard copy at any time. Please feel free to contact us if you have any questions regarding this form.
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Forcella Wealth Management
1600 Victor Ave ● Redding, CA 96003
Phone 530.222.6301 ● Toll Free 800.546.5573 ● Fax 530.226.1677
jim.forcella@lpl.com ● www.forcellawealth.com
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* This
newsletter was prepared by PEAK.
* The
Standard & Poor's 500 (S&P 500) is an unmanaged group of securities
considered to be representative of the stock market in general.
* The DJ
Global ex US is an unmanaged group of non-U.S. securities designed to reflect
the performance of the global equity securities that have readily available
prices.
* The
10-year Treasury Note represents debt owed by the United States Treasury to the
public. Since the U.S. Government is seen as a risk-free borrower, investors
use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold
represents the London afternoon gold price fix as reported by the London
Bullion Market Association.
* The DJ
Commodity Index is designed to be a highly liquid and diversified benchmark for
the commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ
Equity All REIT TR Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo!
Finance is the source for any reference to the performance of an index between
two specific periods.
* Opinions expressed are subject to change
without notice and are not intended as investment advice or to predict future
performance.
* Past performance does not guarantee future
results.
* You cannot invest directly in an index.
* Consult your financial professional before
making any investment decision.
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Securities Offered Through LPL Financial Member FINRA/SIPC
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